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It'll soon be clear that I'm no economist. My studies were in science. In the way I've seen my neighbor's teen eyes glaze over when she has to learn algebra, mine did the same in economics. Too bad -- it's something I sure wish I had a better handle on now! But I don't have to be an economist to know this: our "leaders" are setting us up for the next "great depression." I'm not just speaking about the US, I'm speaking about the leaders worldwide who are furiously implementing austerity measures, measures that affect the 95% of "real" people in these countries. We have our very own Herbert Hoovers in all of these countries, including the USA. What do we call the next great depression, the one that's around the corner? Great Depression the Replay? Great Depression the Avoidable? Great Depression Redux? Whatever we call it, we owe it in large part to the greed of the richest 1% worldwide; political "leaders" who kowtow to the richest 1% and their corporate overlords; organizations like the WTO that exploit workers, decimate the environment and quash dissent; trade policy disasters like NAFTA, which doomed both the American manufacturing base and American workers; failure of politicians to listen to a wide spectrum of economists, many of them Nobel prize winners, other than those who support the ruinous path we're on; and a complete and utter failure to learn from history. I've been reading some of JK Galbraith's classic "The Great Crash, 1929." I admit I've only been able to read sections online so far -- I've ordered a copy of the paperback. But I have a clear enough understanding (I think) to assert the following: The conditions Galbraith saw causing the crash & depression, and the causes for the depression's depth and longevity are present today and our "leaders" are marching us straight in that direction. What were the 5 main weaknesses in our economy then and now? - Income imbalances, with the majority of money concentrated in the richest 5% of the country. That meant that the richest 5% had to make up for the rest of the country when it came to investing and spending/consumerism. Obviously, that was impossible. Today, the concentration is even smaller, limited to the richest 1% in the US who, clearly, won't make up for the 99% who can afford less and less as workers & the middle class are increasingly starved by the greedy 1%. We see how austerity measures in Europe are impacting economic growth by focusing on cuts that impact the already strained middle & working classes and the poorest of citizens.
- Rapid Declines in Manufacturing Spread Global Anxiety, European Economy Slows More Than Forecast as Debt Crisis Saps German Might
- And we're seeing the growing anger of workers in all of these countries, where workers are the targets of these austerity measures: Workers in Europe Protest Austerity Measures, General Greek Strike Protesting New Austerity Met With Tear Gas
- As we all know, our country is following the same disastrous path, with the same result: Faltering consumer spending to weigh on growth: Faltering consumer spending to weigh on growth, Wal-Mart Frets as U.S. Shoppers Buy Food and Little Else.
- An article in today's Guardian says it clearly and succinctly in an article talking about stagnant European economic growth & reasons for it, with Germany now feeling the pinch along with other countries:
This was entirely predictable, as the misguided austerity politics is beginning to bite and an unresolved debt crisis adds to uncertainty about the future. Let's remind ourselves of what the problem with austerity measures is. If countries that trade with each other are all cutting back at the same time, it is almost certain to have a dampening effect on growth. Leaving aside competitive currency devaluations for the moment – another factor in this game – such policies cut off all avenues to economic growth. Why?
When public consumption and investments are cut back, private consumption and investment under current circumstances will not compensate for this. Many private households are still in debt and face economic uncertainty, and will therefore not spend enough to compensate for public cuts. Companies see there is a lack of demand for products and services and therefore have no incentive to invest. This leaves only foreign trade to have a positive impact on growth – also often called a beggar-thy-neighbour policy, as growth relies on other countries consuming more than they produce. But as most important trading partners are cutting back too, with the effects explained above, consistently growing through export increases is also very unlikely – even for Germany.
- Another of Galbraith's conditions was corrupt banking, including the Union Industrial Bank, leading to stock market maneuvers that were significant enough to cause the "mortal blow" in the stock market crash. He saw corporate structures of entities like holding companies & investment trusts
"as contributing to a deflationary spiral due in no small part to their high reliance on leverage. Dividends paid the interest on the bonds in the holding companies and when these were interrupted the structure collapsed." Galbraith said, “The fact was that American enterprise in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, impostors, and frauds. This, in the long history of such activities, was a kind of flood tide of corporate larceny." “The most important weakness was the vast new structure of holding companies and investment trusts.”
We pretty much have a new generation of "grafters, swindlers, impostors, and frauds" and our very own "flood tide of corporate larceny." And we have a government that looks the other way. Instead of prosecuting these frauds, the leading fraudsters are given a seat at lawmaker's tables and woven into even the presidential administration. I'll add more on fraud later. Suffice it to say, this aspect of the 1929 crash is very much present today.
Third, the bad banking structure. The weakness was manifest in the large number of units working independently. As one failed pressure was applied to another leading to a domino effect accelerated by increasing unemployment and lower incomes.
Boy, does that sound familiar!
Fourth, foreign trade imbalances. During World War I, the US became a creditor nation, exporting more than it imported. High tariffs on imports contributed to this imbalance. Subsequent defaults by foreign governments led to a decline in exports, which was especially hard on farmers.
And finally, "the poor state of economic intelligence". Galbraith says that the "economists and those who offered economic counsel in the late twenties and early thirties were almost uniquely perverse" and that "the burden of reputable economic advice was invariably on the side of measures that would make things worse".
Yet again, this condition sets off alarm bells! In 2003, 10 economics Nobel laureates & 450 other economists warned Bush et al that the dividend tax cut would contribute economic problems in the US, including increasing the deficit. They were ignored. 300 economists have again warned against the current economic policies in the forefront in Washington now. So far, it appears that they, also, are being ignored. And the vehement, loud tea party types have held so much sway in this current ruinous budget, Washington is holding itself hostage to these loud economic morons and may, in the end, take all of us down with the sinking ship because of it.
Back to the issue of fraud & corruption. The rampant corruption we're seeing in the corporate world, coupled as it is with the political world in a way that has the two more tightly coiled together than I recall ever seeing before, the failure of the federal government to route out the fraud and, instead, minimizing it and levying small, token fines and with the coddling we see Washington doing of the fraudsters (e.g.,see: Krugman, Letting Bankers Walk) are all contributing to conditions similar to those in the 1920s, according to some prominent economists.
A number of prominent economists assert that it was fraud that led to the "great depression," the kind of fraud we're seeing today. (From Washington's Blog, following their guidelines to post whole articles) and have further weighed in to urge the prosecution of the banksters & Wall Street'ers who committed fraud, saying that trust in the system and in the rule of law is essential to any true recovery: As economists such as William Black and James Galbraith have repeatedly said, we cannot solve the economic crisis unless we throw the criminals who committed fraud in jail. And Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals - and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.
As well as creating a complete lack of trust among regular citizens for banking and the entire American economic system.
Nobel prize winning economist Joseph Stiglitz just agreed. As Stiglitz told Yahoo's Daily Finance on October 20th: This is a really important point to understand from the point of view of our society. The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that's really the problem that's going on.
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A lot of the predatory practices in automobile loans are going to be able to be continued. Why is it OK to engage in bad lending in automobiles and not in the mortgage market? Is there any principle? We all know the answer to that. No, there's no principle. It's money. It's campaign contributions, lobbying, revolving door, all of those kinds of things
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The system is designed to actually encourage that kind of thing, even with the fines
Robert Shiller - one of the top housing experts in the United States - says that the mortgage fraud is a lot like the fraud which occurred during the Great Depression. As Fortune notes: Shiller said the danger of foreclosuregate -- the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt -- is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly. The former chief accountant of the S.E.C., Lynn Turner, told the New York Times that fraud helped cause the Great Depression: The amount of gimmickry and outright fraud dwarfs any period since the early 1970's, when major accounting scams like Equity Funding surfaced, and the 1920's, when rampant fraud helped cause the crash of 1929 and led to the creation of the S.E.C. Economist Robert Kuttner writes: In 1932 through 1934 the Senate Banking Committee, led by its Chief Counsel Ferdinand Pecora, ferreted out the deeper fraud and corruption that led to the Crash of 1929 and the Great Depression. Similarly, Tom Borgers refers to: The 1930s’ Pecora Commission, which investigated the fraud that led to the Great Depression .... Professor William K. Black writes: The original Pecora investigation documented the causes of the economic collapse that led to the Great Depression. It ... established that conflicts of interest and fraud were common among elite finance and government officials.
The Pecora investigations provided the factual basis that produced a consensus that the financial system and political allies were corrupt. Moreover, the Glass Steagall Act was passed because of the fraudulent use of normal bank deposits for speculative invesments. As the Congressional Research Service notes: In the Great Depression after 1929, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass Steagall Act. Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith's, definitive study of the Great Depression, The Great Crash, 1929: The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy. In 2004, the FBI warned publicly of "an epidemic of mortgage fraud." But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ....
This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.
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The government that permits this to happen is complicit in a vast crime.
As James Galbraith notes:
The original sin of Obama's presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.
And now, the administration, rather than standing up to Republicans and fighting hard for the Americans he promised to represent, has joined the Republican disastrous economic policy frame, focusing on deficit reduction rather than jobs & economic stimulus.
Robert Reich, talking to people in the administration, says that there has been a deliberate decision to focus on the wrong issues, knowing that they’re the wrong issues: So rather than fight for a bold jobs plan, the White House has apparently decided it’s politically wiser to continue fighting about the deficit. The idea is to keep the public focused on the deficit drama – to convince them their current economic woes have something to do with it, decry Washington’s paralysis over fixing it, and then claim victory over whatever outcome emerges from the process recently negotiated to fix it. They hope all this will distract the public’s attention from the President’s failure to do anything about continuing high unemployment and economic anemia.
Who knows, maybe Richard Clark's take is as legit an explanation as any:
In a nutshell, what it says is that the world is being prepared for the kind of "neo-feudalism" that these banksters (intent on ever more completely becoming our masters and lords) intend to implement. And so it is that America is in the early stages of being subjected to the same type of plundering as Greece and Ireland.
No, I don't think the Obama administration is purposely joining with the corporatocracy to cause conditions for American workers to be begging for jobs under any condition. But their approach to this budget fight sure feeds into the likelihood that will come to pass.
Robert Reich, talking to people in the administration, says that there has been a deliberate decision to focus on the wrong issues, knowing that they’re the wrong issues: So rather than fight for a bold jobs plan, the White House has apparently decided it’s politically wiser to continue fighting about the deficit. The idea is to keep the public focused on the deficit drama – to convince them their current economic woes have something to do with it, decry Washington’s paralysis over fixing it, and then claim victory over whatever outcome emerges from the process recently negotiated to fix it. They hope all this will distract the public’s attention from the President’s failure to do anything about continuing high unemployment and economic anemia.
Our president is actively taking this course, knowing it's the wrong course? WTF?!!
Corporate influence has become so entangled in Washington policies, it's tough to tell when corporate desires and Washington policies are separate. Clearly in recent history, they are not separate. So, do we have the corporatocracy truly taking over and urging economic policies that will, in the end, create a feudal class over which corporations and the wealthy have far more power than they do now? A class of people so desperate for jobs they'll soon join nations that have, essentially, a slaving class working under terrible conditions for low wages with no benefits? It's hard not to believe that when you look at current corporate practices, government policies that more and more push toward privatization of everything Americans need to live and succeed -- education, wages, rights, health care, retirement, housing, and on and on. We had a Democratic president suggest one solution to the housing glut was for the wealthy to buy up foreclosed properties and rent them back to American workers!!!!
Welcome to feudal America!
But conspiracy theories are doomed to kill any good arguments about our current state and what might happen should America go the way of Europe & focus mostly on austerity. I believe based on everything I've read by rational economists (including all those Nobel laureates), it'll be welcome to Great Depression Redux, coming soon to a neighborhood near you courtesy of national & international politics, the WTO, and the new policy determiners, the corporatocracy. What follows could be truly horrifying for all but the richest 1-10%.
(All emphases were in the originals.)
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